Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred S.B. No. 3225 entitled:

begs leave to report as follows:

The purpose of this measure is to establish the right of a policyholder who successfully enforces in arbitration the policyholder's right to benefits under an insurance policy to an award of attorney's fees and costs.

The Department of Commerce and Consumer Affairs and the Consumer Lawyers of Hawaii testified in support of the measure. State Farm Insurance Companies and the Hawaii Insurers Council opposed the measure.

Your Committee finds that arbitration offers a more efficient and less costly alternative to litigation to resolve liability disputes between policyholders and their insurers, and should, therefore, be encouraged. Your Committee further finds that current law contains a disincentive to dispute resolution through arbitration because it entitles policyholders to an award of attorney's fees and costs if they succeed in obtaining benefits in a lawsuit, but not if the same rights are held enforceable in arbitration. Further, the Hawaii Supreme Court has interpreted current law to limit such awards to judicial proceedings. This measure corrects this inequity by extending the policyholder's right to an award of attorney's fees and costs to arbitration actions.

Your Committee has amended this measure by deleting proposed language referencing arbitration and repealing existing language that limits fees and costs awards to orders obtained in a lawsuit. As amended, this measure clarifies that when an insurer contests its liability to pay benefits under a policy, and a policyholder or beneficiary is required to obtain the services of an attorney to obtain benefits under the policy in a contested proceeding, the insurer must pay the other party's reasonable attorney's fees and costs, in addition to the policy benefits. This obligation to pay reasonable fees and costs is not limited to lawsuits, but extends to arbitration.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 3225, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 3225, S.D. 1, and be referred to the Committee on Judiciary and Hawaiian Affairs.